DUBAI May 22 Pakistan's insurance firms have
resolved a legal dispute with regulators which allows them to
offer takaful, or Islamic insurance, a move expected to attract
new players and boost competition in the sector.
Pakistan introduced new takaful rules in 2012, allowing the
use of takaful windows, which enables insurers to offer
sharia-compliant and conventional products side by side,
provided client money is segregated.
This prompted a legal challenge by the country's five
takaful firms claiming the rules gave conventional insurers an
unfair advantage, leaving the industry in limbo.
This has now been cleared up after a mutual agreement was
reached this month, Muhammad Kashif Siddiqee, Joint Director at
the Securities and Exchange Commission of Pakistan (SECP), told
Reuters by telephone.
Under the agreement, insurers will have to allocate 50
million rupees ($506,100) in capital to their window operations,
from no capitalisation requirement in the original rules.
The takaful rules will be applicable after a three-month
period and the regulator would also amend them to allow takaful
firms to co-insure risks alongside conventional players, which
the initial rules had forbidden.
Takaful is seen as a bellwether of consumer appetite for
Islamic finance products. It is based on the concept of
mutuality; the takaful company oversees a pool of funds
contributed by all policy holders, but does not necessarily bear
Takaful has operated without conventional competitors in
Pakistan since the first rules were introduced in 2005, but
regulators have been keen to increase insurance penetration.
Takaful's share of the total insurance market is estimated
at less than 3 percent and the entry of conventional players
would help boost this figure.
The regulator has now received five applications for takaful
windows and expects as many as half of all conventional insurers
to eventually apply for a licence, said Siddiqee.
The move comes at a time when authorities are stepping up
efforts to develop Islamic finance, encouraging the industry to
expand its operations in the world's second most populous Muslim
(Editing by David Evans)